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Loan Literacy: 5 Types of Loan That You Should Know About
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Loan Literacy: 5 Types of Loan That You Should Know About

As humans, we‘re always subject to having problems, particularly financial problems. Whether work-related or family problems, it all comes down to a lack of resources like money. We can’t avoid these uncertainties, but know that there will always be solutions, and one of those is applying for a loan. This is the primary solution that you can have.

Some people with minor problems ask their friends or relatives to lend them some cash. But if the problem is beyond their capacity, then a loan application would be the best solution. You can apply for a loan mostly in private institutions or banks, and it’s good to know what these loans you can apply for. With that said, here are the types of loans you should know.

Unsecured Personal Loans

Unsecured Loans are loans that are granted to the borrower without collateral. This type of loan includes personal loans, student loans, and credit cards. For an Unsecured loan to be approved, the borrower must have a high credit score. In this way, the lenders can assure that the borrower is creditworthy.

This type of loan also applies a higher interest rate compared to other loans. That is because, in the point of view of the lender, they’ll have a higher risk of not getting paid back since it has no collateral, so they’ll impose a higher interest rate. It would be a good idea to visit Crediful and learn more about loans and how to improve credit scores.

Secured Personal Loans

As you may already be expected, secured loans contrast with unsecured loans, for this type of loan secured collateral from the borrower. Collaterals may include your physical assets like a car, house, or land. But in this type of loan, the buyer won’t worry about having a low credit score or if it’s not sufficient since there’s collateral in line.

It would be best to not get behind your loans and pay on time so the institution won’t seize your assets that are put as collateral. Once your assets are put as collateral, and you stop making payment, the lender can put it in an auction, and the profit will be used as a payment on the amount owed. This process is called foreclosure.

Cash Advance Loans

The Cash Advance Loans is one of the most common loans that someone can easily apply for. Cash advance loans are the same as Payday loans, and with that said, the lender will determine the creditworthiness of the borrower based on their paycheck. Generally speaking, when you apply for this loan, the basis for approval depends on how much you earn.

In addition, since this loan is for immediate and short-term borrowing, the lender usually imposes a high-interest rate. But in the light-matter, this type of loan does not require any collateral. Before applying for this loan, ensure first that your state is not included in last 2020’s list of states that are banned from practicing Payday loans.

Home Equity Loans

A Home Equity loan or a mortgage loan is a secured type of loan. Your house will be used as collateral for the amount you want to borrow. You can determine the equity by deducting the mortgage you still owed in your house from its current market value, and since this is a type of secured loan, foreclosure is applied when you stop making payment.

To ensure that you can pay the amount owed, borrow only what is needed, even if lenders will tell you that you can still borrow more than what you expected. This is a common mistake for some people, they borrow more than what they need, and when it’s time to pay their bills, nothing is left for them. Do not earn just to pay your bills, but earn, pay your bills, and invest.

Title Loans

Title loans are another example of a secured loan because your asset will be put as collateral. For example, you have a car that has no outstanding debt, and you badly need the money, you can easily apply for a car title loan. Why? Because the borrower’s credit rating won’t matter in this type of loan as long as you can pay the loan within 15 – 30 days.

This type of loan also offers an amount that you can borrow for a minimum of $100. But generally, lenders will let you borrow 25% of the car’s value, and will keep the title of the car since it is the collateral, more like a pawnshop setting. Here’s an important reminder, loan only if it’s an emergency; apart from that, consider applying first other types of loan.

Takeaway

You’ll have a mixed feeling when you apply for a loan. The feeling of excitement that you’ll have money, and the feeling that you’ll owe money. Nevertheless, loans are there to help us with our financial problems and the above mentioned will give you more knowledge as to what types of loans you can apply for.

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